NAFTA trade ministers to square off over hard-line U.S. demands

WASHINGTON, Oct 17 (Reuters) - Trade ministers from the United States, Canada and Mexico wrap up a contentious round of NAFTA trade talks on Tuesday marked by aggressive U.S. demands that have left the future of the 23-year-old free trade pact in doubt.

The proposals to drastically reshape the North American Free Trade Agreement to help shrink U.S. trade deficits have cast a pall over the modernization talks, leaving some participants and analysts wondering how the NAFTA partners can avoid an impasse.

The U.S. demands, previously identified as red lines by its neighbors, include forcing renegotiations every five years, reserving the lion’s share of automotive manufacturing for the United States and making it easier to pursue import barriers against some Canadian and Mexican goods.

U.S. Trade Representative Robert Lighthizer, Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Minister Chrystia Freeland are scheduled to meet and take stock of the negotiations before issuing statements at a joint event at 3 p.m. (1900 GMT). They later plan to separately brief media.

Lighthizer has made no apologies about his hard negotiating line, which he has said reflects U.S. President Donald Trump’s desire to claw back lost manufacturing jobs and shrink U.S. goods trade deficits amounting to $64 billion with Mexico and $11 billion with Canada last year.

Trump has continued his attacks on NAFTA throughout the talks launched in August, repeating his threats to terminate the pact if Mexico and Canada won’t agree to changes.

U.S. negotiators opened a new front over the weekend with a proposal that Canada dismantle its system of protections for the dairy and poultry sectors, a move that Ottawa will reject, a source briefed on the matter said on Monday.

U.S. opposition to NAFTA’s dispute resolution mechanisms, plans to restrict outside access to government contracts and attacks on Canadian dairy and softwood lumber producers have further stoked the grim mood among trade officials.

While Mexican and Canadian officials have expressed dismay at the U.S. proposals, they have publicly taken a less confrontational stance, with three more negotiating rounds scheduled through December.

“This is what negotiations are like,” Vanessa Rubio, Mexico’s deputy finance minister, said on Saturday.

“There are sectors where you get to a deal quicker, and in other sectors where you don’t. But let’s just say we’re in the normal process of a free trade negotiation.”

Canadian and Mexican officials are loosely allied with U.S. industry, farm and services lobbying groups who are opposed to the Trump proposals and stepping up their efforts to persuade administration officials to ease them.

Financial markets have taken notice of the acrimony over the negotiating table. By Monday, Mexico’s peso hit a near five-month low with fears growing about the future of the deal underpinning $1.2 trillion in annual trade between the three countries.

Mexico sends nearly 80 percent of its exports to the United States. (Additional reporting by Dave Graham; Editing by Kim Coghill)